Home > >
What to trade and when
This article appeared in the May 2012 ASX Investor Update email newsletter. To subscribe to this newsletter please register with the MyASX section or visit the About MyASX page for past editions and more details.
Take control of yourself and your trading.
By Louise Bedford, author
Where you wind up at the end of 2012 is an exact report card on what you accepted, tolerated and let slide in your life. Yes, it's May and almost half of the year has gone. But you still have time to take a stand and change before the year is done and dusted.
Just what are you tolerating that is gravely affecting your financial future? Only you can answer that and I urge you to take a good, long look in the mirror. The only person you can blame is staring at you.
There are dumber, less organised, less educated and less attractive people than you making money in the markets, right now. One quality they share is not being prepared to accept what you may be accepting. They took steps, sometimes baby steps, in the direction of their own education. They got angry. They became intolerant. They succeeded.
The first move is always yours. Reach out, grab your future, don't be deterred. And your first step? Work out what to trade and when.
Get a macro filter
One of the concepts that most beginner traders have never heard of is a "macro filter". The more I've traded and the more I've back-tested my own personal trading systems, the more I've realised how important this concept is.
A good macro filter will examine the state of the overall market and tell you whether to trade long (so you can make money out of an uptrend), trade short (make money out of a downtrend), or whether you should not be trading the current market at all.
If you think of the GFC, billions of dollars would have been saved in superannuation portfolios if only people had learned when not to trade. Instead of believing the market was falling like a warm knife through butter, they buried their heads in the sand and did not want to face reality.
There are times when you should trade like a bandit, and times when you should not be trading. I urge you to develop rules to help decide under what conditions you will trade.
There are lots of ways to approach this, but as a simple idea, if the overall market index you want to trade is showing activity below the 30-week exponential moving average, it is likely to be going down and you should consider entering short positions. If the index is above its 30-week exponential moving average, enter long positions. If the market is going sideways, according to your rules, consider not opening any new positions.
I know it's a simple idea, but don't just breeze over it and think it's too simple to work.
How you should start
Most novices in the market dive into leveraged instruments far too early in their trading career. They bypass equities and try a triple-layered options spread over the futures markets with a twist of lime. Needless to say, they suffer the consequences.
I suggest you start with a rocking horse before trying to saddle-up a twitchy stallion. Begin with trading shares, especially in the top 300 ranked by market capitalisation. Once you have developed your trading plan and skills, consider using more leveraged items. At that stage, follow your heart, your interests and your passions.
If trading commodities fascinates you, first immerse yourself in learning about them. If you are more of a foreign exchange person, educate yourself in this area. If exchange traded funds fascinate you, indulge yourself and learn about them.
Once you have one non-leveraged item under your belt, you will find that leverage will not freak you out. However, mark my words, if you leverage up too soon in your trading career, you will not only damage your bank account, but also your psyche.
About the author
Louise Bedford is a full-time private trader and author of four best-selling books - The Secret of Writing Options, The Secret of Candlestick Charting, Charting Secrets and Trading Secrets. Register for her free monthly email newsletter and free five-part e-course.
The ASX Sharemarket Game is one of the world's great real-time trading games and the only type of its kind in Australia. Each player has a notional $50,000 to invest over 10 to 15 weeks, with a maximum of 10 orders a day to buy and sell. No more than 25 per cent of the portfolio's value can be held in one share.
ASX Sharemarket Games provides more information on the Schools and Public sharemarket games.
The views, opinions or recommendations of the author in this article are solely those of the author and do not in any way reflect the views, opinions, recommendations, of ASX Limited ABN 98 008 624 691 and its related bodies corporate ("ASX"). ASX makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions. To the extent permitted by law, ASX excludes all liability for any loss or damage arising in any way including by way of negligence.
© Copyright 2013 ASX Limited ABN 98 008 624 691. All rights reserved 2013.
© 2013 ASX Limited ABN 98 008 624 691